Accounts Payable I

Case Study Introduction

 Learning Objectives
At the end of this module, you will be able to:

• Use a case study to practice applying

concepts
• Apply lean thinking and analysis tools to
an office process
• Sketch a future state value stream map
• Recall the impact that variability has on
process performance

Accounts Payable I – v7.5 - Slide 2

© 2012 Massachusetts Institute of Technology
 Rockwell Collins Background
• Leading provider of commercial and
military avionics systems and
information technology
• Founded in 1933 as Collins Radio
Company
• Acquired by Rockwell International
in 1973
• Spun-off in 2001 as an independent,
publicly traded company
• Today, more than 20,000 employees
at over 60 locations in 27 countries
• 1998 - “Lean Electronics”
launched by CEO Clay Jones
as RC’s operating philosophy

Courtesy of Rockwell Collins. Used with permission.

Accounts Payable I – v7.5 - Slide 3
© 2012 Massachusetts Institute of Technology
 Rockwell Financial Performance

Notes (1) Additional factors beyond Lean Electronics contribute to Rockwell Collins
superior sector performance
(2) Financial performance for firms can include non-aerospace business units
Accounts Payable I – v7.5 - Slide 4
© 2012 Massachusetts Institute of Technology
Accounts Payable Overview
• Switched to invoice-less “Pay From
Receipt” or PFR system in 1993
• Implemented in SAP corporate data
base system in 1999
• Purchasing Department issues
Purchase Order (PO) into SAP
• Receiving Department enters data into
SAP upon receipt of shipment
• Vendor payment triggered when PO
and receipt reconciled
• Vendor charges shipping to RC
account
• RC pays taxes
• No invoice needed from vendor
• About 80% of transactions currently
on PFR
• Processing the remaining invoices is
a problem
Accounts Payable I – v7.5 - Slide 5
© 2012 Massachusetts Institute of Technology
 Quarterly AP Metric Summary

1st Q 2nd Q 3rd Q 4th Q

Non PFR Invoice 13,700 14,500 15,200 15,600

Volume (nearest 100)
Average Cycle Time 5.8 6.1 6.3 6.4
(weeks)
Percent Past Due 8% 10% 11% 12%

Increasing Volume
Lengthening Cycle Time
Growing Number of Past Due Payments to Suppliers
Accounts Payable I – v7.5 - Slide 6
© 2012 Massachusetts Institute of Technology
 Process Improvement Flow
• AP has developed a VSM for their process
• It is in your folders
• Value stream analysis (VSA) needs to be done
to prepare for an upcoming AP Rapid Process
Improvement (RPI) event
• You will do this tonight and discuss tomorrow.
• RPI event will identify improvement strategies
and develop a future state VSM
• We will do this in class tomorrow
• An implementation plan for the new VSM will
be worked out during Lean Implementation
module
Accounts Payable I – v7.5 - Slide 7
© 2012 Massachusetts Institute of Technology
 Rapid Process Improvement
Workshop (RPIW)
• Focused on a specific improvement
opportunity
• Chartered by a sponsor who gives
improvement goals and organizational
constraints, and provides resources
• Lean coaches & facilitators provided
• Event is up to a week in duration
• One to three months preplanning
• Involves all important stakeholders
• Data driven process
• Ends with implementation plan
• Implemented outcomes measured Photo by Earll Murman

JHC AMI RPIW – Apr 2009

Doing in 1 week what otherwise takes months or years

Accounts Payable I – v7.5 - Slide 8
© 2012 Massachusetts Institute of Technology
 Homework

• Read the case study in your folder

• Verify that the provided Value Stream Map
accurately reflects the data in the case study
• Work out the answers to Questions 1-4
• Come to class prepared to discuss the case
study and perform further analysis.

Accounts Payable I – v7.5 - Slide 9

© 2012 Massachusetts Institute of Technology
MIT OpenCourseWare
http://ocw.mit.edu

16.660J / ESD.62J / 16.53 Introduction to Lean Six Sigma Methods

IAP 2012

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